1. Managers as Decision Makers

2. Describe the eight steps in the decision-making process
Describe the eight steps in the decision-making process. Explain the four ways managers make decisions. Classify decisions and decision-making conditions. Describe different decision-making styles and discuss how biases affect decision making. Identify effective decision-making techniques.

3. The Decision-Making Process
Decision - making a choice from two or more alternatives
Managers at all levels and in all areas of organizations make decisions. That is, they make choices. Although decision making is typically described as choosing among alternatives, this view is too simplistic. Why? Because decision making is (and should be) a process,
not just a simple act of choosing among alternatives.

4. The Decision-Making Process
managers at all levels and in all areas of organizations make decisions.
For instance:
top level managers make decisions about their organization’s goals, where to locate manufacturing facilities, or what new markets to move into.
Middle and lower level managers make decisions about production schedules, product quality problem, pay raises, and employee discipline.
Making decisions isn’t something that just managers do, but our focus is on how managers make decisions
Exhibit 6-1 page 137 shows the eight steps in the decision making process.

5. Exhibit 6-1 Decision-Making Process

6. The Decision-Making Process (cont.)
Step 1: Identify a Problem
Problem : an obstacle that makes it difficult to achieve a desired goal or purpose.
Example - Amanda is a sales manager whose reps need new laptops because their old ones are outdated and inadequate for doing their job. it’s not economical to add memory to the old computers and it’s the company’s policy to purchase, not lease.
- Amanda has a problem: problem—a disparity between the sales reps’ current computers (existing condition) and their need to have more efficient ones (desired condition). Amanda has a decision to make.
- Every decision starts with a problem.
Every decision starts with a problem, a discrepancy between an existing and a desired condition. For our example, Amanda is a sales manager whose reps need new laptops because their old ones are outdated and inadequate for doing their job. To make it simple, assume it’s not economical to add memory to the old computers and it’s the company’s policy to purchase, not lease. Now we have a problem—a disparity between the sales reps’ current computers (existing condition) and their need to have more efficient ones (desired condition). Amanda has a decision to make.

7. The Decision-Making Process (cont.)
How the managers identify problems?
managers have to be cautions not to confuse problems with symptoms of a problem. In the example: the symptoms as poor quality products, high prices or bad advertising.
Managers should keep in their mind that problem identification is subjective.
What one manager considers a problem might not be considered a problem by another manager.

8. The Decision-Making Process (cont.)
Step 2: Identify Decision Criteria
Decision criteria are factors that are important (relevant) to resolving the problem,
Every decision maker has criteria guiding his or her decisions even if they’re not explicitly stated.
In our Example - Amanda decides that memory and storage capabilities, display quality, battery life, warranty, and carrying weight are the relevant criteria in her decision.
Once a manager has identified a problem, he or she must identify the decision criteria important or relevant to resolving
the problem. Every decision maker has criteria guiding his or her decisions even if they’re not explicitly stated. In our example,
Amanda decides after careful consideration that memory and storage capabilities, display quality, battery life, warranty, and carrying weight are the relevant criteria in her decision.

9. The Decision-Making Process (cont.)
Step 3: Allocate Weights to the Criteria
The decision maker must weight the items in order to give them the correct priority in the decision.
A simple way is to give the most important criterion a weight of 10 and then assign weights to the rest using that standard
The weighted criteria for our example are shown in Exhibit 6-2. page 138
If the relevant criteria aren’t equally important, the decision maker must weight the items in order to give them the correct
priority in the decision. How? A simple way is to give the most important criterion a weight of 10 and then assign weights to the rest using that standard. Of course, you could use any number as the highest weight. The weighted criteria for our example are shown in Exhibit 6-2.

10. Exhibit 6-2 Important Decision Criteria

11. The Decision-Making Process (cont.)
Step 4: Develop Alternatives
The decision maker requires to list viable alternatives that could resolved the problem. The alternative are only listed, not evaluated.
In our Example - Amanda, identifies eight laptops as possible choices. (See Exhibit 6-3.) page 139
The fourth step in the decision-making process requires the decision maker to list viable alternatives that could resolve the problem. In this step, a decision maker needs to be creative, and the alternatives are only listed—not evaluated—just yet. Our sales manager, Amanda, identifies eight laptops as possible choices. (See Exhibit 6-3.)

12. Exhibit 6-3 Possible Alternatives

13. The Decision-Making Process (cont.)
Step 5: Analyze Alternatives
Appraising each alternative’s strengths and weaknesses
Decision maker must evaluate each alternative, by using the criteria established in step (2).
See exhibit 6-3 and exhibit 6-4 page 139
When you multiply each alternative by the assigned weight, you get the weighted alternatives as shown in exhibit The total score for each alternative, then, is the sum of its weighted criteria.
Once alternatives have been identified, a decision maker must evaluate each one. How? By using the criteria established in Step 2. Exhibit 6-3 shows the assessed values that Amanda gave each alternative after doing some research on them. Keep in mind that these data represent an assessment of the eight alternatives using the decision criteria, but not the weighting. When you multiply each alternative by the assigned
weight, you get the weighted alternatives as shown in Exhibit 6-4. The total score for each alternative, then, is the sum of its weighted criteria.
Sometimes a decision maker might be able to skip this step. If one alternative scores highest on every criterion, you wouldn’t need to consider the weights because that alternative would already be the top choice. Or if the weights were all equal, you could evaluate an alternative merely by summing up the assessed values for each one. (Look again at Exhibit 6-3.) For example, the score for the HP ProBook would be 36, and the score for the Sony NW would be 35.

14. The Decision-Making Process (cont.)
Step 6: Select an Alternative
Choosing the best alternative
The alternative with the highest total weight is chosen.
In our example (Exhibit 6-4), Amanda would choose the Toshiba Qosmio because it scored higher than all other alternatives (249 total).
The sixth step in the decision-making process is choosing the best alternative or the one that generated the highest total in Step 5. In our example (Exhibit 6-4), Amanda would choose the Dell Inspiron because it scored higher than all other alternatives (249 total).

15. Exhibit 6-4 Evaluation of Alternatives

16. The Decision-Making Process (cont.)
Step 7: Implement the Alternative
Putting the chosen alternative into action
- Conveying the decision to and gaining commitment from those who will carry out the alternative. We know that if the people who must implement a decision participate in the process, they’re more likely to support it than if you just tell them what to do. Another thing managers may need to do during implementation is reassess the environment for any changes, especially if it’s a long-term decision. Are the criteria, alternatives, and choice still the best ones, or has the environment changed in such a way that we need to reevaluate?
In Step 7 in the decision-making process, you put the decision into action by conveying it to those affected and getting their commitment to it. We know that if the people who must implement a decision participate in the process, they’re more likely to support it than if you just tell them what to do. Another thing managers may need to do during implementation is reassess the environment for any changes, especially if it’s a long-term decision. Are the criteria, alternatives, and choice still the best ones, or has the environment changed in such a way that we need to reevaluate?

17. The Decision-Making Process (cont.)
Step 8: Evaluate Decision Effectiveness
Evaluating the outcome or result of the decision to see if the problem was resolved.
If the evaluation shows that the problem still exist, then the manager needs to assess
- what went wrong,
- was the problem incorrectly defined,
- where errors made when evaluating alternatives,
- was the right alternative selected but poorly implemented?
The answers might lead you to redo an earlier step or might even require starting the whole process over.
The last step in the decision-making process involves evaluating the outcome or result of the decision to see whether the problem was resolved. If the evaluation shows that the problem still exists, then the manager needs to assess what went wrong. Was the problem incorrectly defined? Were errors made when evaluating alternatives? Was the right alternative selected but poorly implemented? The answers might lead you to redo an earlier step or might even require starting the whole process over.

18. Managers Making Decisions:
Decisions making in all four managerial functions.
Exhibit 6-5 page 141 showing that.
Most decision making is routine, every day of the year you make a decision about your activities.

19. Exhibit 6-5 Decisions Managers May Make
Although everyone in an organization makes decisions, decision making is particularly important to managers. As Exhibit 6-5 shows, it’s part of all four managerial functions. In fact, that’s why we say that decision making is the essence of management. And that’s why managers—when they plan, organize, lead, and control—are called decision makers.

20. Exhibit 6-5 Decisions Managers May Make (cont.)

21. Managers Making Decisions: continued:
How managers make decisions? three perspective on how managers make decisions: rational, bounded, and intuition
a) Rational Decision-Making - a type of decision making in which choices that are logical and consistent while maximizing value.
After all, managers have all sorts of tools and techniques to help them be rational decision makers. Managers aren’t always rational. What does it mean to be a “rational” decision maker: assumptions of rationality:

22. Making Decisions: Rationality
Assumptions of Rationality
The decision maker would be fully objective and logical
The problem faced would be clear and unambiguous
The decision maker would have a clear and specific goal and know all possible alternatives and consequences and consistently select the alternative that maximizes achieving that goal
and decisions are made in the best interests of the organization.
We assume that managers will use rational decision making; that is, they’ll make logical and consistent choices to maximize value. After all, managers have all sorts of tools and techniques to help them be rational decision makers. Managers aren’t always rational. What does it mean to be a “rational” decision maker? A rational decision maker would be fully objective and logical. The problem faced would be clear and unambiguous, and the decision maker would have a clear and specific goal and know all possible alternatives and consequences. Finally, making decisions rationally would consistently lead to selecting the alternative that maximizes the likelihood of achieving that goal.

23. Making Decisions: Bounded Rationality
b) Bounded Rationality - decision making that’s rational, but limited (bounded) by an individual’s ability to process information. Because they can’t possibly analyze all information on all alternatives there for:
- managers satisfice, rather than maximize. :That is, they accept solutions that are “good enough.” They’re being rational within the limits (bounds) of their ability to process information.
Also Managers decision making influence by the organization’s culture, internal politics, power considerations, and a phenomenon called
- Escalation of commitment: an increased commitment to a previous decision despite evidence that it may have been a poor (wrong) decision.
A more realistic approach to describing how managers make decisions is the concept of bounded rationality, which says that managers make decisions rationally, but are limited (bounded) by their ability to process information. Because they can’t possibly analyze all information on all alternatives, managers satisfice, rather than maximize. That is, they accept solutions that are “good enough.” They’re being rational within the limits (bounds) of their ability to process information.
However, keep in mind that their decision making is also likely influenced by the organization’s culture, internal politics, power considerations, and by a phenomenon called escalation of commitment, an increased commitment to a previous decision despite evidence that it may have been wrong.

24. Making Decisions: The Role of Intuition
c) Intuitive decision- making
Making decisions on the basis of experience, feelings, and accumulated judgment.
Researchers studying managers’ use of intuitive decision making have identified five different aspects of intuition which are described in exhibit 6-6 page 142.
What is intuitive decision making? It’s making decisions on the basis of experience, feelings, and accumulated judgment. Researchers studying managers’ use of intuitive decision making have identified five different aspects of intuition, which are described in Exhibit 6-6.

25. Exhibit 6-6 What Is Intuition?

26. Managers Making Decisions: continued:
Intuitive decision making can complement both rational and boundedly rational decision making, how?
- managers who has had experience with a similar type of problem or situation often can act quickly with what appears to be limited information and can achieved higher decision making performance, because of that past experience.
- Managers should ignore emotions when make decisions may not be the best advice.
“Any decision-making process is likely to be enhanced through the use of relevant and reliable evidence, whether it’s buying someone a birthday present or wondering which new washing machine to buy.” That’s the premise behind evidence-based management (EBMgt), the “systematic use of the best available evidence to improve management practice.
EBMgt is quite relevant to managerial decision making. The four essential elements of EBMgt are the decision maker’s expertise and judgment; external evidence that’s been evaluated by the decision maker; opinions, preferences, and values of those who have a stake in the decision; and relevant organizational (internal) factors such as context, circumstances, and organizational members.

27. Types of Decisions: Structured Problems and Programmed Decisions
: Structured Problems - straightforward, familiar, and easily defined problems.. Example might include:
- when a customer returns a purchase to a store.
- When a supplier is late with an important delivery.
because they’re straightforward, familiar, and easily defined, Because it’s not an unusual occurrence, there’s probably some standardized routine for handling it becomes:
: Programmed decision – a repetitive decision that can be handled by a routine approach,
Because the problem is structured, the manager doesn’t have to go the trouble and expense of going through an involved decision making process.
Some problems are straightforward. The decision maker’s goal is clear, the problem is familiar, and information about the problem is easily defined and complete. Such situations are called structured problems because they’re straightforward, familiar, and easily defined. Because it’s not an unusual occurrence, there’s probably some standardized routine for handling it. This is what we call a programmed decision, a
repetitive decision that can be handled by a routine approach. Because the problem is structured, the manager doesn’t have to go to the trouble and expense of going through an involved decision process. The “develop-the-alternatives” stage of the decision-making process either doesn’t exist or is given little attention. Why? Because once the structured problem is defined, the solution is usually self-evident or at least reduced to a few alternatives that are familiar and have proved successful in the past.

28. Structured Problems and Programmed Decisions (cont.)
The manager relies on one of three types of programmed decisions: procedure, rule, or policy.
Procedure - a series of sequential steps used to respond to a well-structured problem. Ex: when a purchasing manager receives a request from a warehouse manager to purchase some thing to complete the work
. Rule - an explicit statement that tells managers what can or cannot be done. Rules are frequently used because they are simple to follow and ensure consistency.
Ex: rules about lateness and absenteeism permit supervisors to make disciplinary decisions rapidly and fairly.
A procedure is a series of sequential steps a manager uses to respond to a structured problem. The only difficulty is identifying the problem. Once it’s clear, so is the procedure. For instance, a purchasing manager receives a request from a warehouse manager for 15 tablets for the inventory clerks.
A rule is an explicit statement that tells a manager what can or cannot be done. Rules are frequently used because they’re simple to follow and ensure consistency. For example, rules about lateness and absenteeism permit supervisors to make disciplinary decisions rapidly and fairly.
The third type of programmed decisions is a policy, a guideline for making a decision. In contrast to a rule, a policy establishes general parameters for the decision maker rather than specifically stating what should or should not be done. Policies typically contain an ambiguous term that leaves interpretation up to the decision maker.

29. Structured Problems and Programmed Decisions (cont.)
Policy - a guideline for making decisions
Its establishes general parameters for the decision maker rather than specifically stating what should or should not be done.
Policies contain an ambiguous term that leaves interpretation up to the decision maker, here some sample policy statements:
the customer always comes first and should always be satisfied.
We promote from within whenever possible.
Employee wages shall be competitive within community standards.
The terms satisfied, whenever, and competitive require interpretation.

30. Types of Decisions: Unstructured Problems and Nonprogrammed Decisions
Not all problems managers face can be solved using programmed decisions, some involve:
:Unstructured Problems : a problem that is new or unusual and for which information is ambiguous or incomplete.
When the problem are unstructured, managers should rely on nonprogrammed decisions in order to develop unique solutions
:Nonprogrammed decisions : a unique and nonrecurring decision that requires and involve a custom made solutions.
Exhibit 6-7 page 145 describe the differences between programmed and nonprogrammed decisions.
Not all the problems managers face can be solved using programmed decisions. Many organizational situations involve unstructured problems, new or unusual problems for which information is ambiguous or incomplete. Whether to build a new manufacturing facility in China is an example of an unstructured problem.

31. Exhibit 6-7 Programmed Versus Nonprogrammed Decisions
Exhibit 6-7 describes the differences between programmed and nonprogrammed decisions. Lower-level managers mostly rely on programmed decisions (procedures, rules, and policies) because they confront familiar and repetitive problems. As managers move up the organizational hierarchy, the problems they confront become more unstructured.

32. Decision-Making Conditions
When making decisions, managers may face three different conditions: certainty, risk, and uncertainty.
Certainty - a situation in which a manager can make accurate decisions because all outcomes are known.
For example, when Wyoming’s state treasurer decides where to deposit excess state funds, he knows exactly the interest rate offered by each bank and the amount that will be earned on the funds. He is certain about the outcomes of each alternative
The ideal situation for making decisions is one of certainty, a situation where a manager can make accurate decisions because the outcome of every alternative is known. For example, when Wyoming’s state treasurer decides where to deposit excess state funds, he knows exactly the interest rate offered by each bank and the amount that will be earned on the funds. He is certain about the outcomes of each alternative. As you might expect, most managerial decisions aren’t like this.
Far more common situation is one of risk, conditions in which the decision maker is able to estimate the likelihood of certain outcomes. Under risk, managers have historical data from past personal experiences or secondary information that lets them assign probabilities to different alternatives.
What happens if you face a decision where you’re not certain about the outcomes and can’t even make reasonable probability estimates? We call this condition uncertainty. Managers face decision-making situations of uncertainty. Under these conditions, the choice of alternative is influenced by the limited amount of available information and by the psychological orientation of the decision maker.

33. Decision-Making Conditions
Risk - a situation in which the decision maker is able to estimate the likelihood of certain outcomes managers have historical data from past personal experiences or secondary information that lets them assign probabilities to different alternatives.
Uncertainty - a situation in which a decision maker has neither certainty nor reasonable probability estimates available. the choice of alternative is influenced by the limited amount of available information and by the psychological orientation of the decision maker.

34. Decision-Making Conditions
Under uncertainty: The manager may be:
optimistic manager: he will follow a maximax choice (maximizing the maximum possible payoff). Or
a pessimist manager: he will follow a maximin choice (maximum the minimums possible payoff).
A manager may follow a minimax choice, when he desires to minimize his maximum (regret).
Exhibit 6-9 page 146 and 6-10 page 147 demonstrate that.

35. Exhibit 6-9 Payoff Matrix
A marketing manager at Visa has determined four possible strategies (S1, S2, S3, and S4) for promoting the Visa card throughout the West Coast region of the United States. The marketing manager also knows that major competitor MasterCard has three competitive actions (CA1, CA2, and CA3) it’s using to promote its card in the same region. For this example, we’ll assume that the Visa manager had no previous knowledge that would allow her to determine probabilities of success of any of the four strategies. She formulates the matrix shown in Exhibit 6-9 to show the various Visa strategies and the resulting profit, depending on the competitive action used by MasterCard.

36. Exhibit 6-10 Regret Matrix
In the third approach, managers recognize that once a decision is made, it will not necessarily result in the most profitable payoff. There may be a “regret” of profits given up—regret referring to the amount of money that could have been made had a different strategy been used. Managers calculate regret by subtracting all possible payoffs in each category from the maximum possible payoff for each given event, in this
case for each competitive action.

37. Decision-Making Styles
Some managers tend to rely more on data and facts when making decisions, while other used his judgment and feeling to make decisions.
Linear-nonlinear thinking style profile:
The decision making affected by a person thinking style reflect two things:
- the source of information you tend to use (external data and facts or internal sources) such as feeling and intuition.
- How you process that information (linear-rational, logical, analytical, or nonlinear- intuitive, creative, insightful).
These dimensions are collapsed into two style:
Your thinking style reflects two things: (1) the source of information you tend to use (external data and facts OR internal sources
such as feelings and intuition), and (2) whether you process that information in a linear way (rational, logical, analytical) OR a nonlinear way (intuitive, creative, insightful). These four dimensions are collapsed into two styles. The first, linear thinking style, is characterized by a person’s preference for using external data and facts and processing this information through rational, logical thinking to guide decisions and actions. The second, nonlinear thinking style, is characterized by a preference for internal sources of information (feelings and intuition) and processing this information with internal insights, feelings, and hunches to guide decisions and actions.

38. Decision-Making Styles: continued:
a) the linear thinking style: is a decision style characterized by a person’s preference for using external data and facts and processing this information through rational, logical thinking to guide decisions and actions.
b) The nonlinear thinking style: is a decision style characterized by a person’s preference for using internal resources of information (feeling and intuition) and processing this information with internal insights, feeling, and hunches to guide decisions and actions.

39. Decision-Making Biases and Errors
Managers may use rules of thumb (heuristics) to simplify their decision making.
Heuristics can be useful because they help managers to make sense of complex, uncertain, and ambiguous information.
The rules of thumb may lead to errors and biases in processing and evaluation information.
Exhibit 6-11 page 149 identifies 12 common decision errors and biases that managers make.

40. Exhibit 6-11 Common Decision-Making Biases40

41. Decision-Making Biases and Errors
- Overconfidence Bias - when decision maker tend to think they know more than they do.
unrealistically positive views of oneself and one’s performance.
- Immediate Gratification Bias - describe decision maker who tend to want immediate rewards and to avoid immediate costs holding.
choosing alternatives that offer immediate rewards and avoid immediate costs.
When managers make decisions, they not only use their own particular style, they may use “rules of thumb,” or heuristics, to simplify their decision making. Rules of thumb can be useful because they help make sense of complex, uncertain, and ambiguous information. Even though managers may use rules of thumb, that doesn’t mean those rules are reliable. Why? Because they may lead to errors and biases in
processing and evaluating information. Let’s look at each.
When decision makers tend to think they know more than they do or hold unrealistically positive views of themselves and their performance, they’re exhibiting the overconfidence bias. The immediate gratification bias describes decision makers who tend to want immediate rewards and to avoid immediate costs. For these individuals, decision choices that provide quick payoffs are more appealing than those with payoffs
in the future.

42. Decision-Making Biases and Errors (cont.)
- Anchoring Effect - describe the situation when decision makers fixating on initial information and ignoring subsequent information.
Selective Perception Bias - when decision makers selecting, organizing and interpreting events based on the decision maker’s biased perceptions.
Confirmation Bias - decision makers tend to at face value information that confirms their preconceived views and are critical and skeptical of information. seeking out information that reaffirms past choices while discounting contradictory
The anchoring effect describes how decision makers fixate on initial information as a starting point and then, once set, fail to adequately adjust for subsequent information. First impressions, ideas, prices, and estimates carry unwarranted weight relative to information received later. When decision makers selectively organize and interpret events based on their biased perceptions, they’re using the selective perception
bias. This influences the information they pay attention to, the problems they identify, and the alternatives they develop. Decision makers who seek out information that reaffirms their past choices and discount information that contradicts past judgments exhibit the confirmation bias.

43. Decision-Making Biases and Errors (cont.)
Framing Bias - decision makers selecting and highlighting certain aspects of a situation while ignoring other aspects.
Availability Bias - causes decision makers to tend to remember events that are the most recent and vivid in their memory (losing decision-making objectivity by focusing on the most recent events).
Representation Bias - when decision makers assess the likelihood of an events based on how closely it resembles other events or sets of events. (drawing analogies and seeing identical situations when none exist).
Randomness Bias - occurs when decision makers creating unfounded meaning out of random events.
The framing bias is when decision makers select and highlight certain aspects of a situation while excluding others. By drawing attention to specific aspects of a situation and highlighting them, while at the same time downplaying or omitting other aspects, they distort what they see and create incorrect reference points. The availability bias happens when decisions makers tend to remember events that are
the most recent and vivid in their memory. The result? It distorts their ability to recall events in an objective manner and results in distorted judgments and probability estimates. When decision makers assess the likelihood of an event based on how closely it resembles other events or sets of events, that’s the representation bias. Managers exhibiting this bias draw analogies and see identical situations where they don’t exist. The randomness bias describes the actions of decision makers who try to create meaning out of random events. They do this because most decision makers have difficulty dealing with chance even though random events happen to everyone, and there’s nothing that can be done to predict them.

44. Decision-Making Biases and Errors (cont.)
Sunk Costs Errors - decision makers forget that current choices can’t correct the past. (forgetting that current actions cannot influence past events and relate only to future consequences).
Self-Serving Bias - occurs when decision makers taking quick credit for successes and blaming outside factors for failures.
Hindsight Bias - when decision makers tend to falsely believe after that outcome is actually known. (mistakenly believing that an event could have been predicted once the actual outcome is known (after-the-fact).
The sunk costs error occurs when decision makers forget that current choices can’t correct the past. They incorrectly fixate on past expenditures of time, money, or effort in assessing choices rather than on future consequences. Instead of ignoring sunk costs, they can’t forget them. Decision makers who are quick to take credit for their successes and to blame failure on outside factors are exhibiting the self-serving bias. Finally, the hindsight bias is the tendency for decision makers to falsely believe that they would have accurately predicted the outcome of an event once that outcome is actually known.

45. Overview of Managerial Decision Making
Exhibit 6-12 page 151 provides an overview of managerial decision making.
The decision making process affected by five factors:
decision making approach
types of problems and decisions
decision making conditions
decision making style.
decision making errors and biases

46. Exhibit 6-12 Overview of Managerial Decision Making
Exhibit 6-12 provides an overview of managerial decision making. Because it’s in their best interests, managers want to make good
decisions— that is, choose the “best” alternative, implement it, and determine whether it takes care of the problem, which is the reason the decision was needed in the first place.

47. Guidelines for Making Effective Decisions:
Understand cultural differences
Create standards for good decision making
Know when it’s time to call it quits
Use an effective decision making process
Build an organization that can spot the unexpected and quickly adapt to the changed environment
Decision making is serious business. Your abilities and track record as an effective decision maker will determine how your organizational work performance is evaluated and whether you’ll be promoted to higher and higher positions of responsibility. Here
are some guidelines to help you be a better decision maker.
Understand cultural differences. Managers everywhere want to make good decisions. However, is there only one “best” way worldwide to make decisions? Or does the “best way depend on the values, beliefs, attitudes, and behavioral patterns of the people involved?”
Create standards for good decision making. Good decisions are forward-looking, use available information, consider all available and viable options, and do not create conflicts of interest.
Know when it’s time to call it quits. When it’s evident that a decision isn’t working, don’t be afraid to pull the plug.
Use an effective decision-making process.
Build an organization that can spot the unexpected and quickly adapt to the changed environment.

48. Guidelines for Making Effective Decisions: continued:
Highly reliable organizations: share 5 habits:
they are not tricked by their success, alert to the smallest deviations and react quickly to anything that doesn’t fit with their expectations
defer to the expert on the front line workers (interact day to day with customers).
Let unexpected circumstances provide the solution: reaction of the foreman illustrates how effective decision makers respond to unexpected circumstances.
Embrace complexity:
Anticipate but also recognize their limits.

49. Review Learning Outcome 6.1
Describe the eight steps in the decision-making process.
Identify problem
Identify decision criteria
Weight the criteria
Develop alternatives
Analyze alternatives
Select alternative
Implement alternative
Evaluate decision effectiveness
A decision is a choice. The decision-making process consists of eight steps: (1) identify problem; (2) identify decision criteria; (3) weight the criteria; (4) develop alternatives; (5) analyze alternatives; (6) select alternative; (7) implement alternative; and (8) evaluate decision effectiveness.

50. Review Learning Outcome 6.2
Explain the four ways managers make decisions.
Assumptions of rationality
The problem is clear and unambiguous
A single, well-defined goal is to be achieved
All alternatives and consequences are known
The final choice will maximize the payoff
The assumptions of rationality are as follows: the problem is clear and unambiguous; a single, well-defined goal is to be achieved; all alternatives and consequences are known; and the final choice will maximize the payoff. Bounded rationality says that managers make rational decisions but are bounded (limited) by their ability to process information

51. Review Learning Outcome 6.2 (cont.)
Satisficing - when decision makers accept solutions that are good enough.
Escalation of commitment - managers increase commitment to a decision even when they have evidence it may have been a wrong decision.
Intuitive decision making means making decisions on the basis of experience, feelings, and accumulated judgment.
Evidence-based management, a manager makes decisions based on the best available evidence.
Satisficing happens when decision makers accept solutions that are good enough. With escalation of commitment, managers increase commitment to a decision even when they have evidence it may have been a wrong decision. Intuitive decision making means making decisions on the basis of experience, feelings, and accumulated judgment. Using evidence-based management, a manager makes decisions based on the best available evidence.

52. Review Learning Outcome 6.3
Classify decisions and decision-making conditions
Programmed decisions are repetitive decisions that can be handled by a routine approach and are used when the problem being resolved is straightforward, familiar, and easily defined (structured).
Nonprogrammed decisions are unique decisions that require a custom-made solution and are used when the problems are new or unusual (unstructured) and for which information is ambiguous or incomplete.
Programmed decisions are repetitive decisions that can be handled by a routine approach and are used when the problem being resolved is straightforward, familiar, and easily defined (structured). Nonprogrammed decisions are unique decisions that require a custom-made solution and are used when the problems are new or unusual (unstructured) and for which information is ambiguous or incomplete.

53. Review Learning Outcome 6.3 (cont.)
Classify decisions and decision-making conditions
Certainty is a situation in which a manager can make accurate decisions because all outcomes are known
Risk is a situation in which a manager can estimate the likelihood of certain outcomes.
Uncertainty is a situation in which a manager is not certain about the outcomes and can’t even make reasonable probability estimates.
Certainty is a situation in which a manager can make accurate decisions because all outcomes are known. Risk is a situation in which a manager can estimate the likelihood of certain outcomes. Uncertainty is a situation in which a manager is not certain about the outcomes and can’t even make reasonable probability estimates. When decision makers face uncertainty, their psychological orientation will determine whether they follow a maximax choice (maximizing the maximum possible payoff); a maximin choice (maximizing the minimum possible payoff); or a minimax choice (minimizing the maximum regret— amount of money that could have been made if a different decision had been made).

54. Review Learning Outcome 6.4
Describe different decision-making styles and discuss how biases affect decision making
Linear thinking -style - characterized by a person’s preference for using external data and processing this information through rational, logical thinking.
Nonlinear thinking style - characterized by a preference for internal sources of information and processing this information with internal insights, feelings, and hunches.
A person’s thinking style reflects two things: the source of information you tend to use (external or internal) and how you process that information (linear or nonlinear). These four dimensions were collapsed into two styles. The linear thinking style is characterized by a person’s preference for using external data and processing this information through rational, logical thinking. The nonlinear thinking style is characterized by a preference for internal sources of information and processing this information with internal insights, feelings, and hunches. The 12 common decision-making errors and biases include overconfidence, immediate gratification, anchoring, selective perception, confirmation, framing, availability, representation, randomness, sunk costs, self-serving bias, and hindsight. The managerial decision
making model helps explain how the decision-making process is used to choose the best alternative(s), either through maximizing or satisficing and then implement and evaluate the alternative. It also helps explain what factors affect the decision-making
process, including the decision-making approach (rationality, bounded rationality, intuition), the types of problems and decisions (well structured and programmed or unstructured and nonprogrammed), the decision-making conditions (certainty, risk, uncertainty), and the decision maker’s style (linear or nonlinear).

55. Review Learning Outcome 6.5
Identify effective decision-making techniques.
An effective decision-making process
Focuses on what’s important
Is logical and consistent
Acknowledges both subjective and objective thinking and blends both analytical and intuitive approaches
Requires only “enough” information as is necessary to resolve a problem
Managers can make effective decisions by understanding cultural differences in decision making, knowing when it’s time to call it quits, using an effective decision-making process, and building an organization that can spot the unexpected and quickly adapt to the changed environment. An effective decision-making process (1) focuses on what’s important; (2) is logical and consistent; (3) acknowledges both subjective and objective thinking and blends both analytical and intuitive approaches; (4) requires only “enough” information as is necessary to resolve a problem;

56. Review Learning Outcome 6.5 (cont.)
An effective decision-making process (cont.)
encourages and guides gathering relevant information and informed opinions
Is straightforward, reliable, easy to use, and flexible
Design thinking - “approaching management problems as designers approach design problems.”
(5) encourages and guides gathering relevant information and informed opinions; and (6) is straightforward, reliable, easy to use, and flexible. The five habits of highly reliable organizations are (1) not being tricked by their successes; (2) deferring to experts on the front line; (3) letting unexpected circumstances provide the solution; (4) embracing complexity; and (5) anticipating, but also recognizing, limits.
Design thinking is “approaching management problems as designers approach design problems.” It can be useful when identifying problems and when identifying and evaluating alternatives.